A Theory of Digital Firm-Designed Markets: Defying Knowledge Constraints with Crowds and Marketplaces

. Strategy Science 4(4):323-342. https://doi.org/10.1287/stsc.2019.0092

43 Pages Posted: 3 Mar 2021

See all articles by Hamed Tajedin

Hamed Tajedin

affiliation not provided to SSRN

Anoop Madhok

York University - Schulich School of Business

Mohammad Keyhani

University of Calgary - Haskayne School of Business

Date Written: December 1, 2019

Abstract

In this paper we investigate the ways in which new forms of organization enabled by digital technologies such as crowdsourcing and digital marketplaces are allowing firms to circumvent and defy traditional knowledge constraints. This is part of the broader question of when and why these forms of organization are more efficient relative to alternatives, given that some firms utilize crowdsourcing, marketplaces, as well as traditional forms of organization simultaneously. We observe that an important cluster of these new organizational forms are able to circumvent knowledge constraints because they combine elements of market and hierarchical organization in firm-designed hybrid arrangements. We further categorize these firm-designed markets into one-sided market arrangements (crowds) and two-sided market arrangements (marketplaces). To explain their efficiency relative to hierarchies and relative to each other, we take a knowledge-based perspective and review ways in which firm-designed markets reduce or remove both first-order (known unknown) and second-order (unknown unknown) knowledge constraints compared to hierarchies. Our argument hinges on the notion that firm-designed markets provide semi-directed and undirected search and generativity mechanisms that allow firms to go beyond what is possible with centrally directed search.

Keywords: two-sided markets, information technology, open innovation, technology and innovation management, knowledge-based view, ecosystems, market-hierarchy hybrids, uncertainty, crowdsourcing, platforms

JEL Classification: L1, L10, L17, L19, L20, L21, L22, L23, L25, L26, L29, M10, M19

Suggested Citation

Tajedin, Hamed and Madhok, Anoop and Keyhani, Mohammad, A Theory of Digital Firm-Designed Markets: Defying Knowledge Constraints with Crowds and Marketplaces (December 1, 2019). . Strategy Science 4(4):323-342. https://doi.org/10.1287/stsc.2019.0092, Available at SSRN: https://ssrn.com/abstract=3758154

Hamed Tajedin

affiliation not provided to SSRN

Anoop Madhok

York University - Schulich School of Business ( email )

470 Keele Street
Toronto, ON M3J 1P3
Canada
416-736-2100 x20578 (Phone)

HOME PAGE: http://research.schulich.yorku.ca/faculty-profile-details.jsp?id=87&tab=0

Mohammad Keyhani (Contact Author)

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

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